Taxes and Health Care: How Far How Fast?

Real Healthcare Reform by from National Review, June 9, 2014

Peter Ferrara argues that the heart of a plan to replace Obamacare should be a change in tax policy. Instead of an open-ended tax break for employer-provided coverage, the federal government should provide everyone with a flat tax credit that they can use to pay for either employer-provided or individually-purchased health insurance. James Capretta and Jeffrey Anderson make the case for a slightly different plan. They would provide the tax credit to people who don’t work for large employers that offer health insurance, while capping the tax break for those employers’ plans.

The Capretta-Anderson approach forgoes certain benefits of the Ferrara plan. Capretta and Anderson would not give people who get their insurance through large employers the freedom to exit their plans to get a better deal on the individual market–unless, that is, they are willing to use their own after-tax dollars to do it. But the Capretta-Anderson approach also avoids certain dangers. Let people in large employer plans use tax credits to get out, and younger and healthier people might start rushing for the exits, leaving the employers covering an older and sicker population. They would then have to raise premiums or drop coverage. The risk, then, is that the employer-based system on which most Americans currently rely would unravel. That possibility would make the plan a pretty heavy lift politically.

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